Venture Capital Limited Partnerships (VCLP)

At a glance

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Provides foreign investors with a flow-through tax incentive (exemption from capital gains tax for gains made on eligible investments) to stimulate their investment in Australia’s venture capital sector.

Who can apply:

At a minimum, you must:

  • be a limited partnership or an incorporated limited partnership
  • be established in Australia or in a country with which Australia has a double tax agreement
  • have at least $10 million committed capital
  • have a partnership agreement that ensures the partnership will exist for between five and 15 years.

Other eligibility requirements apply.

Deadline to apply:

You can apply at any time using the online application form.

Contact information:

13 28 46

business.gov.au/contact

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Overview

The Venture Capital Limited Partnership (VCLP) program aims to stimulate Australia's venture capital sector by:

  • helping fund managers attract pooled capital so they can raise new venture capital funds of over $10 million to invest in innovative Australian businesses
  • offering tax benefits to fund managers and eligible foreign investors
  • connecting investors with innovative Australian businesses
  • helping Australian businesses grow by receiving financial support.

There is no 'early stage' test for investments as there is with Early Stage Venture Capital Limited Partnerships.

Fund managers can apply to Innovation and Science Australia to register a partnership as a VCLP. The Department of Industry, Innovation and Science and the Australian Taxation Office (ATO) jointly administer the program on behalf of the Australian Government.

If you are a potential venture capital investor, read Looking to invest in Australia's venture capital market.

If you are a business looking for funding, read Seeking venture capital investment.

How it works

A VCLP must be a new partnership rather than a restructured existing partnership. Applicants must apply to Innovation and Science Australia for registration under the Venture Capital Act 2002 (VCA). Innovation and Science Australia has delegated its decision-making powers for VCLPs to authorised delegates.

A delegate will register a partnership as a VCLP if it meets certain eligibility criteria.

If registered, a VCLP can then make venture capital investments in companies or unit trusts with total assets of not more than $250 million. These investments must meet other criteria. The VCLP must hold the investments for a minimum of 12 months to qualify for tax benefits.

A VCLP must meet ongoing registration and reporting requirements under the VCA to maintain its registration.

Tax benefits

VCLP tax benefits differ for investors and fund managers.

Investors

  • Investors benefit from the VCLP's flow-through tax status. The partnership itself is not taxed and the income flows through to investors.
  • Eligible foreign investors are exempt from income tax on their share of profits (capital or revenue) made by the partnership.
  • Returns to domestic investors are taxed but losses may be deductible.

These tax benefits for investors depend on a number of factors. More detailed information on these tax benefits is included in the VCLP Customer Information Guide.

For tax concession enquiries, contact the Australian Taxation Office on 13 28 66. If you are overseas you can phone +61 8 8208 1847.

Investors should also seek their own professional taxation advice.

Fund managers

General partners (often also the fund managers) can claim their carried interest in the partnership on the capital account, rather than on the revenue account.

The extent of this benefit depends on a number of factors. More detailed information on this tax benefit is included in the VCLP Customer Information Guide.

For tax concession enquiries, contact the ATO on 13 28 66. If you are overseas, phone +61 8 8208 1847.

Fund managers seeking to register a VCLP should seek professional tax advice.

Eligibility criteria

You can apply to register as a VCLP if you:

  • are a new venture capital fund
  • are a limited partnership or an incorporated limited partnership
  • are established in Australia or a country that has a double tax agreement with Australia
  • have a general partner that is a resident of either Australia or a country that has a double tax agreement with Australia
  • have at least $10 million in committed capital, although a partnership that does not satisfy this requirement may be eligible for conditional registration.

In addition, you must have a qualifying partnership agreement that:

  • requires the partnership to remain in existence for between five and 15 years
  • requires partners to contribute capital when required
  • prohibits adding new partners except as provided for in the agreement
  • prohibits increases in committed capital except as provided for in the agreement
  • confers on a general partner the right to require partners to contribute their committed capital to the partnership
  • includes a plan that outlines its intended investment activities.

All information should be read in conjunction with the relevant legislation: the VCA, the Income Tax Assessment Act 1997 and the Income Tax Assessment Act 1936, which can be found at the Federal Register of Legislation.

How to apply

If you would like to apply for registration as a VCLP, complete and submit the online application form, including the following documents:

  • a certificate of registration as a limited partnership or an incorporated limited partnership from the relevant state or territory government authority
  • a certificate of registration if the general partner is a venture capital management partnership
  • an investment plan included in the signed partnership deed
  • a signed limited partnership deed (including the investment plan). If applying for conditional registration, you will need to include a signed basic partnership deed with your partnership deed, if the latter is not signed. The partnership deed must include the following clauses (use the wording below):
    1. require partners to contribute their committed capital as and when required under the agreement
    2. prohibit the addition of new partners to the partnership except as provided for in the agreement
    3. prohibit increases in the partnership's committed capital except as provided for in the agreement
    4. confer on a general partner the right to require partners to contribute their committed capital to the partnership, and
    5. the partnership must remain in existence for a period not less than five years and not more than 15 years from formation of the partnership (this is the date the partnership was registered as a limited partnership or incorporated limited partnership).
  • details of all individual investors and their committed capital. The delegate may request documentary evidence of committed capital
  • the partnership's information memorandum or any public offer documents.

The delegate may request further information, documents or evidence relating to the application for registration.

Conditional registration

The delegate may grant conditional registration to a partnership that does not meet all the requirements under the VCA, such as not having at least $10 million in committed capital.

The partnership must satisfy the delegate that it is likely to meet all the registration requirements within 24 months of conditional registration.

Conditional registration lapses if the partnership is not registered within 24 months.

A conditionally registered VCLP may in certain circumstances make investments. However, it must be fully registered before any tax exemption applies to those investments.

A conditionally registered VCLP must not, when advertising, misrepresent the VCLP as being registered. Any reference to 'registered' should clarify that the registration is conditional. Funds may wish to use the following statement: 'The VCLP is conditionally registered as a Venture Capital Limited Partnership and further conditions will need to be met before being registered as a VCLP'.

Further information about conditional registration is available in the VCLP Customer Information Guide.

When an application will be decided

The delegate has 60 days from receiving a complete registration application to decide whether to grant or refuse the application (which they can extend by a further 60 days). If the application is incomplete it will not be considered. The 60-day timeframe does not start until all information and documents are received.

You will be advised of their decision.

Generally, the delegate will grant registration if your partnership meets the eligibility criteria.

For assistance with the application form, contact us or email venturecapital@industry.gov.au.

Other applications

Applications can be made to Innovation and Science to make decisions about VCLPs other than registration decisions.

These decisions include:

  • extending the time for repayment of a permitted loan
  • extending the time for the partnership to meet the registration requirements before a revocation decision is made
  • shortening the time period during which an investee business must satisfy the Australian location test
  • determining that a requirement of the Australian location test does not apply to an investee business
  • making a determination about whether the investee business's primary activity is not an ineligible activity
  • revoking a VCLP's registration.

Some of these applications must be in the form approved by Innovation and Science Australia, for some a form has not yet been approved and for others no approved form is required. They must all:

  • be in writing
  • be signed by the general partner or their authorised representative
  • be on appropriate letterhead
  • include the following declaration:
    I declare that:
    • I am authorised to make the application in this letter and to sign and submit this declaration on behalf of the applicant.
    • The information contained in this letter, together with any statement attached and any further information or documentation subsequently provided to the Commonwealth in relation to this application is or will be - to the best of my knowledge - correct and complete. I also understand that the provision of false or misleading information or the making of a false or misleading statement to the Commonwealth is a serious offence.

The application may be provided electronically as a scanned copy of the signed original.

Obligations when registered

The fund manager must self-assess activities to ensure the partnership only invests in eligible investments and complies with the legislation by meeting ongoing registration and reporting requirements. This includes submitting quarterly and annual activity reports. A VCLP's registration may be revoked if it contravenes the legislation.

The Department of Industry, Innovation and Science and the ATO will monitor the partnership to assess compliance.

Eligible investments

Before investing, the fund manager must ensure that the investment meets certain criteria. The investment must (among other requirements):

  • be in accordance with the legislation
  • represent no more than 30% of the VCLP's committed capital
  • be in an Australian business*
  • be in the form of shares or units, or options to acquire shares or units, or convertible notes with equity characteristics
  • be at-risk
  • be in a business that:
    • is either a company or a unit trust
    • has total assets of no more than $250 million
    • has at least 50% of its employees and at least 50% of its assets in Australia*
    • has a registered auditor, if the entity value is more than $12.5 million
    • does not have property development, land ownership, finance, insurance, construction or infrastructure, or make investments to receive interest, rents, dividends, royalties or lease payments as its predominant activity
    • does not invest the VCLP's investment in another entity unless it is 'connected with' that entity and satisfies a number of requirements
    • is unlisted or will be delisted within 12 months.

* There is provision for a VCLP to invest up to 20% of its committed capital in businesses that do not meet the Australian location test.

A VCLP that repeatedly holds ineligible investments may have its registration revoked.

This information is a guide only. For more detailed information, please refer to the VCLP Customer Information Guide.

A SAFE (simple agreement for future equity) note is a convertible security that allows the investor to buy shares in a future equity round. To be an eligible venture capital investment, a SAFE note must have the characteristics of a convertible note and not be a debt interest.

Registration requirements

Registration can be revoked for failing to fix a breach of any of the registration requirements within a stipulated period. To maintain registration a VCLP must:

  • only hold investments permitted under the legislation
  • only carry on activities related to being a VCLP
  • only hold a debt interest that is a permitted loan
  • continue to satisfy the eligibility requirements of the VCA
  • have committed capital of at least $10 million.

Reporting requirements

Failing to submit returns or provide requested information can lead to a VCLP's registration being revoked. A VCLP must submit:

  • quarterly returns within one month of the end of each quarter, which include:
    • committed capital
    • drawn down capital
    • invested capital
    • investments
    • disposals
  • annual returns within three months of the end of the financial year, which include:
    • details of limited partners, their committed capital and any changes
    • details of investments held (at cost and book value) and disposals made
    • details of changes made to the partnership agreement during the year.

VCLPs must also maintain appropriate records to demonstrate legislative compliance. For example, a VCLP must be able to show that each investment it holds is an eligible venture capital investment.

The Department of Industry, Innovation and Science may check that a VCLP complies with the law after it is registered. Similarly, the ATO may check that a VCLP complies with the legislation it administers.

Customer stories

Many successful Australian businesses have accessed venture capital to help them develop their innovations and achieve commercial success. Venture capital funds have also been able to grow and prosper as a result of government venture capital initiatives.

To see how Australian businesses and venture capital funds have benefited from venture capital, read our Customer stories.

Venture capital statistics

Find out about our venture capital statistics.

The Australian Private Equity and Venture Capital Association Limited (AVCAL) also publishes statistics and research on the Australian venture capital industry.

Registered VCLPs

  • List of Venture Capital Limited Partnerships

Key documents

  • Customer information guide
  • Forms approved by Innovation and Science Australia
  • Information Paper No.1 - A partnership's committed capital
  • ISA Information Paper - Extension of application timeframe  
  • Expectation and compliance statement

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